Base Salary Rise of 3% Forecast for 2015

Flat post-inflation increases based on modest wage pressure

By Stephen Miller, CEBS
7/9/2014

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U.S. workers can expect a median base salary increase of 3 percent in 2015 across all main employee categories and most industries, still below pre-recession levels, according to separate research findings by pay consultancy Hay Group and WorldatWork, an association of total rewards professionals.

The limited growth indicates no major change in the degree of upward pressure on wages—for now.

Preliminary results from the WorldatWork 2014-2015 Salary Budget Survey, published on July 8, show actual 2014 and projected 2015 salary budgets in the U.S. as follows:

The limited growth in salary budgets indicates that there has been no major change in the degree of upward pressure on wages, given the tepid post-recession economic recovery. As reported in the Wall Street Journal, the monthly hiring rate fell from 5.5 million in 2006 to as low as 3.6 million in 2009, according to the Labor Department. It had only partially rebounded to 4.7 million in May 2014, the latest figure available.

“Although salary budgets in the U.S. are still below historical levels, budgets have been slowly but consistently increasing since 2009,” commented Kerry Chou, WorldatWork senior practice leader.

But “while the unemployment rate is decreasing, many long-time unemployed have simply quit looking, which makes the rate look more favorable than it is. We would expect that at some point, true unemployment will fall to a level low enough to begin putting more upward pressure on wage growth,” Chou said.

When that might happen, however, remains uncertain.

After Inflation, Flat Wage Gains

The Hay Group’s figures, released July 9, also forecast a median base salary increase of 3 percent in 2015 across U.S. executive, management, professional, clerical and operations roles—in line with the year over year median base salary increases of 3 percent the consultancy expects for 2014.

After factoring in annualized consumer price index growth at 2.1 percent, the resulting base pay movement for 2015 is expected to be a minimal net gain of 0.9 percent, according to Hay Group. This compares to an expected 1.6 percent net gain for employees in 2014 and a 2013 net gain of 0.8 percent (see the SHRM Online article Salary Budgets Projected to Hold Steady in 2014.)

Hay Group’s forecast results are based on data provided by over 400 U.S. organizations from March through June 2014. Typical respondents include compensation professionals in the HR departments of small to large U.S. organizations across a wide range of industries.

Industry Variations

Hay Group expects the 3 percent median base salary increase to hold steady across most U.S. industries, including chemical, consumer products, financial services, health insurance, industrial goods and utilities. Two sectors, however, stood out from the status quo:

• Hospital employees can expect an increase of 2 percent for most employee groups in 2015.

Sectors with salary increases that vary from the general industry outlook typically have business performance expectations either significantly above or below the general trend, according to Hay Group.

Regional Variations

While there were no extreme outliers in salary budget increase averages among major U.S. metropolitan areas, WorldatWork found that eight cities reported a decline from 2013 to 2014 from 0.3 to 1 percent in average total salary budget increases (see the SHRM Online article Salary Budget Increases Show Broad Consistency).

Variable Pay and Nonfinancial Rewards

In 2015, U.S. employers will increasingly look to tie reward programs to performance management processes, according to Hay Group research that shows:

“Improving performance management processes and better linking these to rewards programs are top of mind for many reward leaders,” said Tom McMullen, Hay Group’s North American reward practice leader. “Said another way, organizations are quite willing to pay for performance, but only if they achieve their performance goals.”

Concurring View

“While the employment rate continues to go down, there is still significant slack remaining in the labor market, allowing employers to avoid significant acceleration in labor costs,” according to an August 2014 U.S. Salary Increase Budgets for 2015 report by the Conference Board, which concludes:

Despite the relatively low level of projected salary budget increases in 2015, the median of which is the same as the actual increase every year since 2011, the danger of inflation eroding the real value of the increase appears slight. There is little variation across the 11 industry groups examined, with nearly all industries reflecting the same projection for 2015 as a whole — a 3.00 percent median increase across all employee categories. The responses of 315 organizations are included in this year's analysis for the four employee groups: non-exempt hourly (non-union), non-exempt salaried, exempt, and executive.

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